05:59 AM

Qtrax: Free music - with advertising

Ever since O'Reilly's E-Tech conference started - actually, back when it was called the P2P Conference - I've heard predictions that the music labels would one day come to accept that their product was really just fodder for advertising and that the economics would shift from customers paying for CDs to labels giving the product away and wrapping it in advertising. One pundit back in the day suggested that pop songs would be commissioned by advertisers.

Perhaps that day is coming near. The Times today profiles Qtrax, a P2P network planning to launch in September. Qtrax has signed up Warner and EMI and announced a deal with Sony today. The program works just like a P2P downloading program and the downloads are free. One catch - the program displays contextual advertising as you search.

Most people should be willing to trade some eyeball time for a sense that their downloads are legal and that artists are getting paid.

Terry McBride, the chief executive of the Nettwerk Music Group, a label and artist management company, believes a legitimate peer-to-peer service could appeal to illegal downloaders, simply because it works much like the programs they use now.

“My philosophy is, don’t try to get people to consume the way you want them to,” he said. “Figure out how they’re consuming music, market to that and monetize their behavior.” Nettwerk works with a company called Intent MediaWorks, which seeds peer-to-peer networks with copies of the label’s songs that contain advertising.

It's like a Gnuetella client that only brings up licensed music. After half a dozen listens or so, users would have to buy the song to hear it again. But the long-term play is advertising.

“Our challenge is to demonstrate that ad-supported peer-to-peer is lucrative enough that everyone is going to be happy,” Allan Klepfisz, Qtrax CEO, said. “The real issue for the industry is that right now there are all these people paying nothing for music.”

But the labels aren't going to play this game for long. After an initial revenue-sharing period, Qtrax will have to pony up royalties to the labels. That will mean coming up with a lot of advertising dollars.

“I’m a believer in advertising, which pays for an awful lot of media consumption in the U.S.,” said David Card, a senior analyst at Jupiter Research. “But I have yet to see the model that makes me feel good they’ll get enough money out of advertising. The question is, can they get enough mass to lower the royalty?”